Nike Inc. Earnings: What to Expect Thursday

The athletic-apparel maker's stock has performed extraordinarily well lately, but can its growth keep up with investors' expectations? Find out here.

Mar 19, 2014 at 3:25AM

Nike (NYSE:NKE) will release its quarterly report on Thursday, and investors couldn't be happier with the strong performance that the stock has put in lately. Despite competition from newer challengers Under Armour (NYSE:UA) and lululemon athletica (NASDAQ:LULU), Nike has been able to sustain its competitive advantage as the first-mover in the industry, and its brand continues to gain in value and respect around the world.

Nike's story is a fascinating one, with the company essentially pioneering an entire industry of athletic footwear, apparel, and other gear. Now, though, the business is an integrated behemoth that involves huge amounts of marketing, with the firepower of well-known athlete endorsements helping drive sales of products at premium prices that produce enviable margins for Nike. As Under Armour, lululemon, and other competitors like world-renowned Adidas (NASDAQOTH:ADDYY) seek their own growth opportunities, can Nike keep competing? Let's take an early look at what's been happening with Nike over the past quarter and what we're likely to see in its report.

Nike Vapor Laser Talon with 3-D printed cleat plate. Source: Nike.

Stats on Nike

Analyst EPS Estimate


Change From Year-Ago EPS


Revenue Estimate

$6.69 billion

Change From Year-Ago Revenue


Earnings Beats in Past 4 Quarters


Source: Yahoo! Finance.

Can Nike earnings keep growing?
In recent months, analysts have gotten more cautious on their estimates on Nike earnings, cutting $0.06 per share from their February-quarter estimates and a nickel per share on their full-year fiscal 2015 projections. The stock has kept rising, though, climbing 4% since mid-December.

Nike's fiscal second-quarter results in December were mixed in many investors' eyes. The company had a lot of positives, including 8% gains in revenue and higher margins that produced better-than-expected earnings. In particular, higher sales in Western Europe showed Nike's ability to go head-to-head with Adidas, while gains in China helped dispel concerns about slowing economic growth within the emerging-market giant. Some investors were troubled by higher administrative expenses, although Nike incurred some of these costs in order to drive future sales.

A big part of Nike's success has come from its product placements and sponsorships. Nowhere is that more evident than in the NCAA men's basketball tournament, where Nike sponsors 44 of the 68 teams in the annual tournament this month. By contrast, despite Under Armour's moves to try to bolster its own endorsement roster, the upstart only has a single team using its products, while even Adidas only has 19 teams. Surprisingly, that dominance is actually less impressive than in past years, and cutthroat competition among the three companies could see further shifts in future years.

Yet Nike hasn't been afraid to embrace risk in its endorsement plays. Earlier this month, the company signed a deal to bring on controversial college football quarterback Johnny Manziel, who plans to begin playing in the NFL this fall. Manziel has attracted negative publicity for certain actions, but Nike hasn't shied away from the superstar potential for the young quarterback. Given past success with players throughout sports, including tennis great Roger Federer, golf's Tiger Woods, and basketball players LeBron James and the legendary Michael Jordan, Nike's endorsement process is a well-oiled machine that drives sales.

Still, the big danger for Nike is in the confidence that so many investors have in it. As a new member of the Dow Jones Industrials, Nike is a growth giant among the average's venerable components. Yet as lululemon's recent problems illustrate, it's easy for even a well-regarded brand giant to fall from grace, and at current valuations, Nike can't even afford to see growth slow to reasonable levels without at least running the risk of lower share prices.

In the Nike earnings report, watch to see how the company responds to changing competitive pressures among its industry rivals. By keeping itself ahead of the pack, Nike should be able to take full advantage of events like the 2014 World Cup and find new growth avenues to take the company forward for the rest of this year and beyond.

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Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends lululemon athletica, Nike, and Under Armour and owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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